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Chapter2TheImpactofGovernmentPolicyandRegulationontheFinancial-ServicesIndustryFillintheBlankQuestionsThewascreatedaspartoftheGlassSteagallAct.Inthebeginningitinsureddepositsupto$
2500.Answer:FDICTheisthelawthatstatesthatabankmustgetapprovedfromtheirregulatorybodyinordertocombinewithanotherbank.Answer:BankMergerActOnetoolthattheFederalReserveusestocontrolthemoneysupplyis.TheFederalReservewillbuyandsellT-billswhentheyareusingthistoolofmonetarypolicy.Answer:openmarketoperationsThewascreatedin1913inresponsetoaseriesofeconomicdepressionsandfailures.Itsprincipalroleistoserveasthelenderoflastresortandtostabilizethefinancialmarkets.Answer:FederalReserveThepreventedbanksfromcrossingstatelinesandmadenationalbankssubjecttothebranchinglawsoftheirstate.ThisactwaslaterrepealedbytheRiegleNealInterstateBankinglaw.Answer:McFadden-PepperActBecausetheFDICleviesfixedinsurancepremiumsregardlessofriskthisleadstoaproblemcalledtheamongbanks.Thefixedpremiumsencourageallbankstoacceptgreaterrisk.Answer:moralhazardIn1980waspassedandliftedgovernmentceilingsondepositinterestratesinfavoroffreemarketinterestrates.Answer:DIDMCAThe1977lawthatpreventsbanksfrom“redlining“certainneighborhoodsrefusingtoservethoseareasis:TheNationalBankingActTheGam-St.GermainActFIRREATheRiegle-NealInterstateBankingandBranchingEfficiencyActCommunityReinvestmentActCRAAnswer:ECommonminimumcapitalrequirementsonbanksinleadingindustrializednationsthatarebasedontheriskinessoftheirassetsisimposedby:TheNationalBankingActFIRREATheInternationalBankingActTheBaselAgreementNoneoftheAboveAnswer:DThefastestgrowingcrimeintheU.S.is:FinancialstatementmisrepresentationBankrobberiesIndividualprivacyviolationsCreditcardfraudIdentitytheftAnswer:ETheoldestfederalbankagencyisthe:OCCFDICFRSFHCBHCAnswer:AThefederalagencythatregulatesthemostbanksisthe:OCCFDICFRSFHCBHCAnswer:BWhichfederalbankingactrequiresthatfinancialserviceprovidersestablishtheidentityofanycustomersopeningnewaccountsSarbanes-OxleyActUSAPatriotActCheck21ActTheFACTActBankruptcyAbusePreventionandConsumerProtectionActAnswer:BWhichfederalbankingactprohibitspublishingfalseormisleadinginformationaboutthefinancialperfbnnanceofapubliccompanyandrequirestopcorporateofficerstovouchfortheaccuracyoftheircompanysfinancialstatementsSarbanes-OxleyActUSAPatriotActCheck21ActTheFACTActBankruptcyAbusePreventionandConsumerProtectionActAnswer:AWhichfederalbankingactreducestheneedfbrbankstotransportpaperchecksacrossthecountrySarbanes-OxleyActUSAPatriotActCheck21ActTheFACTActBankruptcyAbusePreventionandConsumerProtectionActAnswer:CWhichfederalbankingactforcesmoreindividualstorepayatleastpartofwhattheyoweandwillpushhigher-incomeborrowersintomorecostlyformsofbankruptcySarbanes-OxleyActUSAPatriotActCheck21ActTheFACTActBankruptcyAbusePreventionandConsumerProtectionActAnswer:EWhichfederalbankingactrequirestheFederalTradeCommissiontomakeiteasierfbrvictimsofidentitythefttomaketheftreportsandrequirescreditbureaustohelpvictimsresolvetheproblemSarbanes-OxleyActUSAPatriotActCheck21ActTheFACTActBankruptcyAbusePreventionandConsumerProtectionActAnswer:DTheallowsadequatelycapitalizedbankholdingcompaniestoacquirebanksinanystate.Riegle-NealInterstateBankingandBranchingEfficiencyActCompetitiveEqualityBankingActFinancialInstitutionsReformRecoveryandEnforcementActFederalDepositInsuranceCorporationImprovementActDepositoryInstitutionsDeregulationandMonetaryControlActAnswer:AOneoftheearliesttheoriesregardingtheimpactofregulationonbankswasdevelopedbyGeorgeStigler.Hecontendsthat:Firmsinregulatedindustriesactuallyseekoutregulationsbecausetheybringmonopolisticrents.Regulationsshelterfirmsfromchangesindemandandcostloweringitsrisk.Regulationscanincreaseconsumerconfidencewhichincreasescustomerloyaltytoregulatedfirms.Depositoryinstitutionsshouldberegulatednodifferentlythananyothercorporationwithnosubsidiesorspecialprivileges.NoneoftheaboveAnswer:ASamualPeltzmanhadanopposingviewtoGeorgeStiglerontheimpactofregulationonbanks.Hecontendsthat:Firmsinregulatedindustriesactuallyseekoutregulationsbecausetheybringmonopolisticrents.Regulationsshelterfirmsfromchangesindemandandcostloweringitsrisk.Regulationscanincreaseconsumerconfidencewhichincreasescustomerloyaltytoregulatedfirms.Depositoryinstitutionsshouldberegulatednodifferentlythananyothercorporationwithnosubsidiesorspecialprivileges.NoneoftheaboveAnswer:BThereisanimportantdebateragingtodayregardingwhetherbanksshouldberegulatedatall.GeorgeBenstoncontendsthat:Firmsinregulatedindustriesactuallyseekoutregulationsbecausetheybringmonopolisticrents.Regulationsshelterfirmsfromchangesindemandandcostloweringitsrisk.Regulationscanincreaseconsumerconfidencewhichincreasescustomerloyaltytoregulatedfirms.Depositoryinstitutionsshouldberegulatednodifferentlythananyothercorporationwithnosubsidiesorspecialprivileges.NoneoftheaboveAnswer:DTheEuropeanCentralBankhasthemaingoalof:Ensuringtheeconomygrowsatanadequaterate.Keepingunemploymentlow.Ensuringpricestability.Ensuringanadequateandfairsupplyofloans.AlloftheaboveAnswer:CWhichofthefollowinghasbecometheprincipaltoolofcentralbankmonetarypolicytodayOpenmarketoperationsChangingthediscountrateChangingreserverequirementsUsingmoralsuasionNoneoftheaboveAnswer:ATheFederalReservebuysTreasuryBillsintheopenmarket.Thiswilltendto:CauseinterestratesinthemarkettoriseCauseinterestratesinthemarkettofallCausereservesheldattheFederalReservetodecreaseCauseadecreaseinthegrowthofdepositsandloansAlloftheaboveAnswer:BWhichfederalbankingactextendsdepositinsurancecoverageonqualifiedretirementaccountsfrom$100000to$250000andauthorizestheFDICtoperiodicallyincreasedepositinsurancecoveragetokeepupwithinflationSarbanes-OxleyActTheGramm-Leach-BlileyActCheck21ActTheFACTActFederalDepositInsuranceReformActAnswer:ETheFinancialServicesRegulatoryReliefActof2006doesthefollowing:AddsselectednewservicepowerstodepositoryinstitutionsLoosensregulationsondepositoryinstitutionsGrantstheFederalReserveauthoritytopayinterestondepositoryinstitutions9legalreservesAlloftheaboveNoneoftheaboveAnswer:DTheEmergencyEconomicStabilizationActpassedin2008duringtheglobalcreditcrisisallowedthefollowing:Anemergencysaleof“badassets”TemporaryincreaseofFDICdepositinsuranceto$250000foralldepositsInjectionsofcapitalbythegovernmentintobanksandotherqualifiedlendersClosersurveillanceofthemortgagemarketparticipantssuchasbrokersandlendersAlloftheaboveAnswer:EOnetoolthattheFederalReserveusestocontrolthemoneysupplyis.TheFederalReservewillchangetheinterestratetheychargefbrshorttermloanswhentheyareusingthistoolofmonetarypolicy.Answer:changingthediscountrateThefirstmajorfederalbankinglawintheU.S.wasthe.ThislawwaspassedduringtheCivilWarandsetupasystemfbrcharteringnationalbanksandcreatedtheOCC.Answer:NationalBankingActThewaspassedduringtheGreatDepression.ItseparatedinvestmentandcommercialbanksandcreatedtheFDIC.Answer:Glass-SteagallActThebroughtbankholdingcompaniesunderthejurisdictionoftheFederalReserve.Answer:BankHoldingCompanyActTheallowsbankholdingcompaniestoacquirebanksanywhereintheUnitedStates.Howevernoonebankcancontrolmorethan30percentofthedepositsinanyonestateormorethan10percentofthedepositsacrossthecountry.Answer:Riegle-NealInterstateBankingActTheallowsbankstoaffiliatewithinsurancecompaniesandsecuritiesfirmseitherthroughaholdingcompanyorasasubsidiary.Answer:Gramm-Leach-BlileyActFinancialServicesModernizationActCustomersoffinancial-servicecompaniesmayofhavingtheirprivateinformationsharedwithathirdpartysuchasatelemarketer.Howeverinordertodothistheymusttellthefinancial-servicescompanyinwritingthattheydonotwanttheirpersonalinformationsharedwithoutsideparties.Answer:optoutThefederalbankregulatoryagencywhichexaminesthemostbanksisthe.Answer:FDICThereauiresfinancialservicecompaniestoreportsuspiciousactivityincustomeraccountstotheTreasuryDepartment.Answer:U.S.PatriotActThecentralbankofthenewEuropeanUnionisknownasthe.Answer:EuropeanCentralBankorECBTheActprohibitsbanksandotherpubliclyownedfirmsfrompublishingfalseormisleadingfinancialperformanceinformation.Answer:Sarbanes-OxleyOneofthemainrolesoftheFederalReservetodayis.Theyhavethreetoolsthattheyusetodaytocarryoutthisrole;openmarketoperationsthediscountrateandlegalreserverequirements.Answer:monetarypolicyTheisthecenterofauthorityanddecisionmakingwithintheFederalReserve.Itconsistsofsevenmembersappointedbythepresidentfortermsnotexceeding14years.Answer:BoardofGovernorsThemainregulatorsofinsurancecompaniesare.Answer:stateinsurancecommissionsFederalCreditUnionsareregulatedandexaminedby.Answer:theNationalCreditUnionAdministration.Themakesiteasierforvictimsofidentitythefttofilefraudalertsandallowsthepublictoapplyfbrafreecreditreportonceayear.Answer:FairandAccurateCreditTransactionsActFACTActThemakesitfasterandlesscostlyfbrbankstoclearchecks.Itallowsfbrbankstoelectronicallysendcheckimagesinsteadofshippingpaperchecksacrossthecountry.Answer:Check21ActThewascreatedbytheNationalBankingActandispartoftheTreasuryDepartment.ItistheprimaryregulatorofNationalBanks.Answer:OfficeoftheComptrolleroftheCurrencyOCCTheproposesvariousregulationsapplyingtothefinancialmarketstocombattherecentcreditcrisis.Thisbail-out“billgrantedtheUSTreasurythemeanstopurchasetroubledloansallowedtheFDICtotemporarilyincreasedepositinsuranceandpermittedthegovernmenttoinjectadditionalcapitalintothebankingsystem.Answer:TheEmergencyEconomicStabilizationActof2008True/FalseQuestionsTF
27.FederalReserveActauthorizedthecreationoftheFederalDepositInsuranceCorporation.Answer:FalseTF
28.IntheUnitedStatesfixedfeeschargedfordepositinsuranceregardlessofhowriskyabankisledtoaproblemknownasmoralhazard.Answer:TrueTF
28.Government-sponsoreddepositinsurancetypicallyencouragesindividualdepositorstomonitortheirbanks*behaviorinacceptingrisk.Answer:FalseTF
29.TheFederalReservechangesreserverequirementsfrequentlybecausetheaffectofthesechangesissosmall.Answer:FalseTF
30.TheBankMergerActanditsamendmentsrequiresthatBankHoldingCompaniesbeunderthejurisdictionoftheFederalReserve.Answer:FalseTF
31.NationalbankscannotmergewithoutthepriorapprovaloftheComptrolleroftheCurrency.Answer:TrueTF
32.TheTruthinLendingorConsumerCreditProtectionActwaspassedbytheU.S.Congresstooutlawdiscriminationinprovidingbankservicestothepublic.Answer:FalseTF
33.ThefederallawthatstatesindividualsandfamiliescannotbedeniedaloanmerelybecauseoftheiragesexracenationaloriginorreligiousaffiliationisknownastheCompetitiveEqualityinBankingAct.Answer:FalseTF
34.Underthetermsofthe1994Riegle-NealInterstateBankinglawbankholdingcompaniescanacquireabankanywhereinsidetheUnitedStatessubjecttoFederalReserveBoardapproval.Answer:TrueTF
35.The1994federalinterstatebankingbilldoesnotlimitthepercentageofstatewideornationwidedepositsthataninterstatebankingfirmisallowedtocontrol.Answer:FalseTF
36.Thetermregulatorydialectic*1referstothedualsystemofbankingregulationintheUnitedStatesandselectedothercountrieswhereboththefederalorcentralgovernmentandlocalgovernmentsregulatebanks.Answer:FalseTF
37.Themoralhazardproblemofbanksiscausedbythefixedinsurancepremiumspaidbybanksandcausesbankstoacceptgreaterrisk.Answer:TrueTF
38.WhentheFederalReservebuysT-billsthroughitsopenmarketoperationsitcausesthegrowthofbankdepositsandloanstodecrease.Answer:FalseTF
39.WhentheFederalReserveincreasesthediscountrateitgenerallycausesotherinterestratestodecrease.Answer:FalseTF
40.TheNationalBankAct1863createdtheFederalReservewhichactsasthelenderoflastresort.Answer:FalseTF
41.FIRREA1989allowedbankholdingcompaniestoacquirenonblankdepositoryinstitutionsandifdesiredconvertthemintobranchoffices.Answer:TrueTF
42.TheSarbanes-OxleyActallowsbanksinsurancecompaniesandsecuritiesfirmstofbnnFinancialHoldingCompaniesFHCs.Answer:FalseTF
43.TheGramm-Leach-BlileyActof1999essentiallyrepealstheGlass-SteagallActpassedinthe1930s.Answer:TrueTF
44.Passedin1977theEqualCreditOpportunityActprohibitsbanksfromdiscriminatingagainstcustomersmerelyonthebasisoftheneighborhoodinwhichtheylive.Answer:FalseTF
45.ThetoolusedbytheFederalReserveSystemtoinfluencetheeconomyandbehaviorofbanksisknownasmoralhazard.Answer:FalseTF
46.Oneoftheprincipalreasonsforgovernmentregulationoffinancialfirmsistoprotectthesafetyandsoundnessofthefinancialsystem.Answer:TrueMultipleChoiceQuestionsBanksareregulatedforwhichofthereasonslistedbelowBanksareleadingrepositoriesofthepublicssavings.Bankshavethepowertocreatemoney.Banksprovidebusinessesandindividualswithloansthatsupportconsumptionandinvestmentspending.Banksassistgovernmentsinconductingeconomicpolicycollectingtaxesanddispensinggovernmentpayments.Alloftheabove.Answer:EAninstitutionalarrangementinwhichfederalandstateauthoritiesbothhavesignificantbankregulatorypowersisreferredtoas:BalanceofPowerFederalismDualBankingSystemCooperativeRegulationCoordinatedControlAnswer:CThelawthatsetupthefederalbankingsystemandprovidedforthecharteringofnationalbankswasthe:NationalBankActMcFadden-PepperActGlass-SteagallActBankMergerActFederalReserveActAnswer:AThefederallawthatprohibitedfederallysupervisedcommercialbanksfromofferinginvestmentbankingservicesonprivatelyissuedsecuritiesisknownas:TheGlass-SteagallActTheBankMergerActTheDepositoryInstitutionsDeregulationandMonetaryControlActTheFederalReserveActNoneoftheAboveAnswer:ATheGramm-Leach-BlileyActFinancialServicesModernizationActcallsfbrlinkinggovernmentsupervisionofthefinancial-servicesfirmtothetypesofactivitiesthatthefirmundertakes.Forexampletheinsuranceportionofthefirmwouldberegulatedbystateinsurancecommissionsandthebankingportionofthefirmwouldberegulatedbybankingregulators.Thisapproachtogovernmentsupervisionoffinancialservicesisknownas:Consolidatedregulationandsupervision.Functionalregulation.Servicesoversight.Umbrellasupervisionandregulation.Noneoftheabove.Answer:BTheFederalReservepolicytoolunderwhichtheFedattemptstobringpsychologicalpressuretobearonindividualsandinstitutionstoconformtotheFedspoliciesusinglettersphonecallsandspeechesisknownas:MarginrequirementsMoralsuasionDiscountwindowsupervisionConferenceandcompromiseNoneoftheabove.Answer:BThe1994lawthatallowedbankholdingcompaniestoacquirebanksanywhereintheU.S.is:TheGlass-SteagallActTheFederalDepositInsuranceCorporationImprovementActTheNationalBankActTheRiegle-NealInterstateBankingandBranchingEfficiencyAct.Noneoftheabove.Answer:DThefederallawthatallowedtheFederalReservetosetmarginrequirementsis:TheNationalBankingAct.TheMcFadden-PepperAct.TheGlassSteagallAct.TheFederalReserveAct.Noneoftheabove.Answer:COftheprincipalreasonsfbrregulatingbankswhatwastheprimarypurposeoftheNationalBankingAct1863ProtectionofthepublicssavingsControlofthemoneysupplyProvidingsupportfbrgovernmentactivitiesMaintainingconfidenceinthebankingsystemPreventingbanksfromrealizingmonopolypowersAnswer:COftheprincipalreasonsforregulatingbankswhatwastheprimarypurposeoftheFederalReserveActof1913ProtectionofthepublicssavingsControlofthemoneysupplyPreventingbanksfromrealizingmonopolypowersEnsuringanadequateandfairsupplyofloansNoneoftheabove.Answer:BThelawthatallowsliftedgovernmentdepositinterestceilingsandallowedthemtopayacompetitiveinterestrateis:TheNationalBankingAct.TheGlassSteagallAct.TheBankMergerAct.DIDMCANoneoftheabove.Answer:DThelawthatallowsbankstoaffiliatewithinsurancecompaniesandsecuritybrokeragefirmstoformfinancialservicesconglomeratesisTheNationalBankingActTheGlassSteagallActTheGarnSt.GermainActTheRiegleNealInterstateBankingActTheGramm-Leach-BlileyActFinancialServicesModernizationActAnswer:EOftheprincipalreasonsforregulatingbankswhatwastheprimarypurposeoftheTruthinLendingLawProtectionofthepublicssavingsControlofthemoneysupplyPreventingbanksfromrealizingmonopolypowersEnsuringanadequateandfairsupplyofloansNoneoftheabove.Answer:DWhichofthefollowingisanunresolvedissueinthenewcentuiyWhatshouldbedoneabouttheregulatorysafetynetsetuptoprotectsmalldepositorsIffinancialinstitutionsareallowedtotakeonmoreriskhowcantaxpayersbeprotectedfrompayingthebillwhenmoreinstitutionsfailDoesfunctionalregulationactuallyworkShouldregulatorsallowthemixingofbankingandcommerceAlloftheaboveareunresolvedissuesAnswer:EThelawthatmadebankandnonbankdepositoryinstitutionsmorealikeintheservicestheycouldofferandallowedbanksandthriftstomorefullycompetewithotherfinancialinstitutionsis:TheNationalBankingActTheFederalReserveActTheGam-St.GermainActTheRiegle-NealInterstateBankingandBranchingEfficiencyActTheGramm-Leach-BlileyActFinancialServicesModernizationActAnswer:CThelawthatallowedbankholdingcompaniestoacquirenonbankdepositoryinstitutionsandconvertthemtobranchesis:TheNationalBankingActTheGarn-St.GermainActFIRREATheRiegle-NealInterstateBankingandBranchingEfficiencyActNoneoftheAboveAnswer:CTheequivalentoftheFederalReserveSysteminEuropeisknownasthe:EuropeanUnionBankofLondonBasleGroupEuropeanCentralBankSwissBankCorporationAnswer:DThenewfinancialorganizationcreatedbyGramm-Leach-BlileyistheFinancialHoldingCompanyBankHoldingCompanyEuropeanCentralBankFinancialServiceCorporationFinancialModernizationOrganizationAnswer:ATheactwhichrequiresfinancialinstitutionstoshareinformationaboutcustomeridentitieswithgovernmentagenciesis:TheSarbanes-OxleyActTheU.S.TreasuryDepartmentActThe9/11ActTheUSAPatriotActTheGramm-Leach-BlileyActAnswer:D。